Uncertainty in Europe’s Evolving Gas Supply / Demand – the Need for New Infrastructure

Andy Barrett

CERA Senior Associate

23rd October 2008

CONFIDENTIAL© 2008, All rights reserved, Cambridge Energy Research Associates, Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent.

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Critical Questions Addressed via CERA’s Global Energy Scenarios

Global Economy

??

ASIAN PHOENIX. How is the rise of Asia altering the global balance of power? What does it mean for geopolitics and the energy industry?

BREAK POINT. How high can oil prices rise? What would it take to sustain oil above $100 per barrel for a protracted period? How would the world react?

GLOBAL FISSURES. How would a world faced with a sustained slowdown in global economic growth and integration affect energy demand and long-term investment in the energy industry?

Source: Cambridge Energy Research Associates.60403-15

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140

120

2010 20302014 2018 2022 2026

100

80

60

40

20

0

140

120

2010 20302014 2018 2022 2026

100

80

60

40

20

0

140

120

2010 20302014 2018 2022 2026

100

80

60

40

20

0

CERA’s Global Energy Scenarios: key impacts

Source: Cambridge Energy Research Associates.

EconomyStrong GDP growth, particularly in Asia

Short term reduction in GDP (to 2015)

Sustained reduction in GDP

Climate Change

Limited carbon reduction efforts

Strong efforts to reduce carbon

emissions

Little or no carbon reduction efforts

Energy Prices

Gradual decrease in oil prices

($75 real 2008-30)

Sustained high oil prices

($100 real 2008-30)

Sudden drop in oil prices

($55 real 2008-30)

ASIAN PHOENIX GLOBAL FISSURESBREAK POINT

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European Gas Storylines

Ownership Unbundling

Effective functional unbundling

Effective ownership unbundlingLimited – continuation of national champions

Market Connections

Fully linked German, Benelux and French market

Progressively interlinked European markets

Few additional cross-border connections

Continental Prices

Oil Linked Spot Market develops Oil Linked

NBP Prices Short term – oil linked,Thereafter – Henry Hub

Progressive convergence with continental prices

Oil linked, through continental prices

Electric Power

Gas newbuild progressively gives way to coal. RES lose headway

30% RES penetration by 2020.CCS and Nuclear Renaissance post 2020

Delayed retirements. New coal plants dominate

ASIAN PHOENIX GLOBAL FISSURESBREAK POINT

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0

100

200

300

400

500

600

700

800

1995 2000 2005 2010 2015 2020 2025 2030

Bcm

Asian Phoenix

Global Fissures

Break Point

Total Gas Demand – Europe1995-2030

Note: Europe includes EU27 + Norway, Switzerland, Balkan countries and Turkey

737 Bcm

519 Bcm549 Bcm

626 Bcm

2030 Uncertainty

18% Residential & Commercial18% Industrial

60% Power Generation

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Sectoral Demand by Region, Bcm

Source: Cambridge Energy Research Associates.70101-30_161008

101109

70

AP BP20302007

2007

286

351

240

AP BP2030

4158

39

2007AP BP

2030

65

127109

AP BP20302007

47

7355

2007AP BP

2030

10 186

AP BP20302007

Residential/Commercial

Industrial

Power Generation

Own Use & Losses

AP - Asian PhoenixBP - Break Point

## (total demand per year)

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Indigenous Supply Decline Implies Need for New Gas Supplies

Source: Cambridge Energy Research Associates.81001-16

800

Bcm

2025 20300

700

2005 202020152010

600

500

400

300

200

100

Demand Asian Phoenix

Demand Break Point

Indigenous ProductionAsian Phoenix

Indigenous ProductionBreak Point

Need forImported Demand

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Where Will Gas Supply Come From? New Supply Projects to Europe

Source: Cambridge Energy Research Associates.

0

50

100

150

200

250

300

350

LNG Underconstruction

Pipes Underconstruction

LNG Planned Pipes Planned

Bcm

Southern Europe

Northern Europe

8 Projects 3 Projects 48 Projects 8 Projects

54

294

135

39

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Pipeline Projects: Complementary or Competing?

Pipeline PoliticalSupport

Financing Market Transit issues Supply Secured

Nabucco

ITGI?

Nord Stream ?

South Stream

?

Medgaz

Galsi ?

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Regasification Facilities —Existing and Potential(2006 – 2030)

Source: Cambridge Energy Research Associates.50301-72_100208

Regas—Existing (16)

Regas—Proposed (31)

Regas—Under Construction/Extension (5)

Liquefaction—Existing

Liquefaction—Proposed

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CERA_October 2008© 2008, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Today’s Infrastructure Financing Challenge

Source: Cambridge Energy Research Associates.

• New gas import infrastructure through 2030 will cost €45 - 70 billion

• Projects will continue to seek high levels of debt finance / refinance

• Multi-party / multi-national projects need finance in place to gain sanction

• Simpler / scale-able projects can be triggered from balance sheets but will expect to be securitized as soon as possible

• Merchant market risk now ‘very difficult’ in the new financial environment

• Exposure may need support from sovereign backing – government aid and/or guaranteed regulated returns

• The evolving models for pipeline and regas finance may be imperilled

• Regulatory Renaissance – the answer to demand and financial uncertainty?

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Import Capacity Built versus Demand Growth

Source: Cambridge Energy Research Associates.70401-1_100208

Estimated Import Capacity

Estimated Import Demand

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Need for Storage in Europe:Seasonal Flexibility and Power NeedsCERA Scenarios

Source: Cambridge Energy Research Associates.81001-22

European Gas Market Flexibility needsexpressed as Bcm seasonal storage

Load factor development of gas firedpower plants in Europe

Significant additional call on flexibilityonly under Asian Phoenix

Accomodating high renewables share inpower mix in Break Point drives need for new

fast delivery storage

90

80

2025/26 2029/30

60

50

2025 2030

70

60

50

40

30

20

10

02021/222017/182013/142009/102005/06

Asian Phoenix

Break Point

Global Fissures

40

30

20

10

02020201520102005

Asian Phoenix

Break Point

Global Fissures

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Storage: Changes in Seasonal Flexibility by Market Region, 2007–30

Source: Cambridge Energy Research Associates.81001-30

20

Bcm

-10

15

CentralEurope

10

5

0

-5

HeartlandEurope

UK -Ireland

Iberia Turkeyand theBalkans

Nordics

Asian Phoenix

Break Point

Global Fissures

Storage additionsunder construction

Lost IndigenousProduction Swing

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ssrinivasan@cera.com

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